In an announcement that ended six weeks of speculation, the private equity firm said Monday that the Dublin company's directors had agreed to accept Madison Dearborn's buyout bid of 2.15 euros ($2.03 U.S.) per share.

In a second element of the transaction, Jefferson Smurfit Group will distribute to its stockholders the Irish company's 29.3 percent stake in the debt-heavy Chicago paper-products company Smurfit-Stone Container Corp. Based on the recent price of the U.S. company's shares, Jefferson Smurfit holders will receive stock valued at about 1.11 euros ($1.05 U.S.), giving the deal a total value of 3.26 euros ($3.08 U.S.)--below some of the more optimistic guesses as to what the Irish company would fetch.

Tough industry conditions have pushed down the share price of many companies in the highly cyclical paper and packaging sector, making them more attractive buyout candidates. Earlier this year, for example, Weyerhaeuser Corp. launched a hostile bid for rival Willamette Industries, and eventually won the prize by paying $6.2 billion.

The Jefferson Smurfit deal, which represents Madison Dearborn's biggest-ever acquisition and its fifth investment in the paper and packaging industry, "underscores our ongoing commitment" to the packaging sector, said Madison Dearborn President John Canning.

Canning formed Madison Partners in 1993 after a successful tenure at the head of the venture capital unit of First Chicago Corp.

Funds raise billions

Madison Dearborn forms limited-partnership investing vehicles, and then invites investors--such as state pension plans, insurance companies and university endowment funds--to put money into the funds. The first partnership it formed raised $550 million; the latest, known as Madison Dearborn Partners IV, raised a whopping $4 billion last year.

With the roughly $7.7 billion raised through its various funds, Madison Dearborn has invested venture capital in early-stage companies, particularly in the communications industry. It has also helped numerous publicly traded companies go private through the process known as the management leveraged buyout, or LBO, in such fields as basic industry, health care and financial services.

Early in May, Jefferson Smurfit disclosed that it had received an overture from a potential buyer, but it didn't identify the suitor. Within weeks, it confirmed that Madison Dearborn was the source of the tentative proposal.

Because of the earlier hints that a deal was in the works, Jefferson Smurfit shares, which trade in Dublin and London and on the New York Stock Exchange, showed little movement after formal disclosure of the deal. In Big Board trading, for example, Jefferson Smurfit's American depository receipts rose $1.30, or 4.5 percent, to close at $30.40. American depository receipts allow trading in foreign securities.

In London, the company's shares slipped 1 percent, to 201.5 pence, or $2.98 a share.

The buyout price, excluding the Smurfit-Stone stock element, represents a 38 percent premium to the price of Jefferson Smurfit shares on May 1, just before the buyout rumors began pushing the Irish company's shares higher, Madison Dearborn said.

Acquisitions fueled growth

Jefferson Smurfit, now a publicly traded packaging company with global operations and $4.24 billion in revenue, was a small box-manufacturing company when the Smurfit family acquired it in 1938. Under the leadership of second-generation Chief Executive Michael Smurfit, the company built itself into an industry powerhouse through a series of ambitious acquisitions that included heavy borrowing.

Some of those aggressive growth moves have paid off handsomely. Some have proven less successful. In 1999, a Jefferson Smurfit U.S. subsidiary, based in St. Louis, acquired Chicago-based Stone Container Corp. and created Smurfit-Stone Container. Smurfit-Stone Container has been a sluggish performer, however, and has served as a drag on the price of its parent's stock. The deal announced Monday is designed in part, experts have suggested, to help the Irish company shed its ownership stake in the U.S. company.

Michael Smurfit, who lives in Monaco to avoid tax obligations, will sell his shares to Madison Dearborn but will remain with the company and reinvest a "substantial" portion of the proceeds he is to receive. Because of the heavy leverage involved in such transactions, buyouts of the kind disclosed Monday can prove extremely lucrative to investors.

In Chicago, Smurfit-Stone Container President and CEO Patrick Moore said his company's operating strategy won't be affected if Jefferson Smurfit Group goes ahead with its plan to distribute its 71.6 million Smurfit-Stone shares to stockholders.